Chapter

Introduction

Hendrik S. Houthakker and Peter J. Williamson

in The Economics of Financial Markets

Published in print December 1996 | ISBN: 9780195044072
Published online November 2003 | e-ISBN: 9780199832958 | DOI: http://dx.doi.org/10.1093/019504407X.003.0001
Introduction

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This introductory chapter begins by explaining what the book is about. It then goes on to define financial markets and financial instruments, and to outline the basic concepts of accounting – the balance sheet, the cash flow statement, and the income statement. The book is mostly concerned with financial markets in the narrow historical sense of a market as central trading place (e.g., stock exchanges and the futures market); other important financial markets, notably those in government bonds, foreign currencies, and over‐the‐counter stocks, are also included since although they do not have central trading places, they share many of the features of markets in the narrow sense. Financial instruments are defined as readily negotiable claims, and include bonds, shares, futures contracts, and options; since futures and options differ in essential ways from securities – equities (shares or stocks), bonds, and other similar financial instruments – and are traded in different markets, they are called ‘derived financial instruments’, or ‘derivatives’.

Keywords: accounting; balance sheet; bonds; cash flow statement; central trading places; derivatives; equities; financial instruments; financial markets; foreign currencies; futures contracts; government bonds; income statement; options; over‐the‐counter stocks; securities; shares

Chapter.  6089 words. 

Subjects: Financial Markets

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